Suburban bliss Covid reveals property’s future in SA
● The pandemic has accelerated changes in the South African property market that would ordinarily have taken decades — though it remains to be seen whether these are permanent.
Whether it’s the increasing use of satellite offices in suburbs to cater for people wanting to work closer to home, or new uses for space in neighbourhood shopping centres, SA’s suburbs — in townships and larger cities — are set to become a lot more interesting.
Workers are expected to return to big office blocks as vaccines are rolled out, but some of the changes in property use provide a glimpse of what the suburban real estate market could look like in 10 to 15 years, said University of Cape Town professor and property economist François Viruly.
Viruly said many of these trends were already gaining ground before Covid-19, and the pandemic has accelerated them.
The pandemic has “maybe shown us what the property market, work practices and retail practices will look like in 2030 and beyond. It’s given us a [movie] trailer of the future,” which is an advantage — “We rarely get to see the trailers of what life could look like.”
He said before the pandemic, if an executive had suggested the office send everybody home, he or she would have been “fired and thrown out of the boardroom”.
“Now we are seeing what is possible and what isn’t possible. Working from home may not be the answer. If you are at your diningroom table with three crying children around you, it’s not the ideal working environment. But working close to home may be. I take the view that we are going to have to create office environments in the suburbs. It’s that concept of working close to home. It’s that ability to live in Soweto and work in a call-centre or office in your area.”
Viruly said this could also help to reduce transport costs in SA, where people spend up to 40% of their income on getting to work — “as much as they should be spending on their home bond or rental”.
IWG Global, a work-space provider that includes the Regus and Spaces brands in SA, said that “crowding employees into buses, elevators and packed open offices doesn’t seem so attractive to anyone” at the moment and the “demand for suburban offices is on the rise as businesses look to decentralise and diversify their existing workplaces”.
IWG said “some companies are talking about a return to a hub-and-spoke model with a higher quantity of smaller offices in suburban locations. This provides an opportunity to accommodate everyone.”
But Andrew Konig, CEO of Redefine Properties — SA’s second-largest listed property company with a 40% exposure to office property — said the notion of “suburban migration is still in its infancy”. He said he believes it will be temporary in nature, driven by lockdown restrictions.
Any such migration to smaller satellite offices would result in an inefficient use of space, he said.
“We haven’t seen a lot of [suburban migration], but having said that the whole flexible working policy regime has definitely started taking effect. There is an element of downsizing that is natural as a consequence of that. And perhaps almost as a bridging gap between working at the office and partially working at home, there may be a suburban migration drive,” said Konig.
But, he said, the consolidation and downsizing seen in the marketplace is a “shortterm trend”.
“We are still very bullish about offices in terms of the sense of belonging they give staff and the feeling of being connected to colleagues and the company’s reason for being. There is no substitute for that.”
He said that “although there is a knee-jerk reaction” to working in large offices at the moment, “I don’t think it is permanent and I think it will reverse. Once confidence returns and vaccinations are rolled out, I think you will see a return to the office. People are social creatures by nature, especially if you are trying to grow and develop that talent whilst keeping people aligned in terms of corporate culture and common objectives.”
Redefine is exploring ways to incorporate amenities such as crèches and laundromats in office parks to draw people back to the office through work-life integration.
John Jack, CEO of Galetti Corporate Real Estate, said the term “smart offices” comes to mind when “we think of the corporate work environment in 2021”.
“There’s no doubt that the office still plays a key role in bringing staff together, but in a different way than before. Subletting, sale-and-leaseback transactions, hot desks, co-working spaces, flexible lease terms, satellite offices and collaboration rooms are just some of the key trends expected to last for most of 2021,” he said.
Large companies will want to keep their cultures intact by keeping head offices and other premises, but they are now more flexible about working from home.
Sasol CEO Fleetwood Grobler said the group is “very alive” to changes in the office market, and the “future of the office work space is going to change drastically” to “contain a mix of working from home and from the office”.
He said though the numbers vary daily, Sasol has up to about 10% of its staff working from its head office at the moment. Before the pandemic there were about 3,000 people on the premises.
Grobler said generally the need for office space “definitely will reduce” and Sasol is “investigating to see how we can reduce our office space by looking at partners to colocate and to share space with us”.
One thing is certain: property owners are going to have to adapt their properties. Viruly said the big word in the property market globally at the moment is “repurposing”.
Neighbourhood shopping centres, which have performed relatively strongly during the pandemic because of the convenience they offer compared to larger malls, may start playing a “far wider role”, either as pick-up points for e-retailing or even offering outlets where people can rent space for work or learning, he said.
There will be casualties, Viruly said, but the best large shopping centres will adapt.
“Who said you only need shops in shopping centres?” he said. “We’ve had banks in shopping centres, but why can’t you have the attorneys’ firm, the doctor next to the clothing store?”
That SA’s top malls are still holding their own was evident this week with the release of results for the year ended December by Liberty Two Degrees (L2D), which owns part of Sandton City and Eastgate.
The group reported that Sandton City’s turnover for December 2020 was down only a marginal 1.5% compared to the same period in 2019 “due to the high demand for luxury brands at the centre’s Diamond Walk”. This highlights that shoppers will still opt for quality destination malls.
Amelia Beattie, CEO of L2D, said she “strongly believes” that it is not a case of whether a super-regional shopping centre such as a Sandton City or a neighbourhood centre is better, but more about the quality of each asset itself.
“My view is that super-regional shopping centres are not dead. Bad super-regional shopping centres might die, but so will bad neighbourhood and community shopping centres. I think it’s about the asset itself, the quality and location.”
I take the view we are going to have to create office environments in the suburbs